The purchasing process is critical to the success of any hardware-intensive, procurement-heavy company. It involves the acquisition of raw materials, parts, and components necessary to build the final product. As the company grows and expands, managing the purchasing process can become increasingly complex and time-consuming.
To simplify and streamline this process, many companies are turning to electronic PO (Purchase Order) systems. In this article, we will explore the impact of an electronic PO system on the management of the purchasing process and how it can improve efficiency, accuracy, and overall success.
What is purchase order management?
Purchase order management talks about the part of your procurement process that double-checks to ensure each purchase is necessary, justified and optimized for your budget.
For example, your production lines get halfway through a crate of 10,000 1-inch bolts you need for your lawnmower assemblies when they notice the quality just isn’t there any more. After they run a few tests, the line supervisor puts in a purchase requisition request through a purchase order because the line needs more bolts. Otherwise, your company will have a bad batch of mowers.
Purchase order management comes into play when the purchase requisition request goes to the supervisor’s manager, the lead engineer overseeing five production lines. He looks over the electronic purchase order, makes sure the request is legit, and authorizes it for the price stated.
Later that same day, a supplier starts to fulfill the order. Within three days of the rush order, the line was back to running normally.
You can track a purchase requisition request from start to finish with purchase order management software. From the initial purchase order request to approval through to acceptance by the supplier to paying the invoice after the automated three-way match, purchase order software streamlines this part of your procurement process while reducing errors and creating automatic oversights.
Purchase order management is an inherent part of the electronic purchase order process.
What is an electronic purchase order system?
An electronic purchase order system is a paperless way to create, track, send, and fulfill digital purchase orders. This is a modern way of doing business because many of your suppliers probably utilize some kind of electronic order fulfillment process.
There are many benefits that an electronic purchase order system has for your company.
How can an electronic purchase order system benefit my company?
The bottom line is that your chosen purchase order management software saves your company money on several levels.
We’ll show you how.
Streamlines PO Approval
Your existing purchase requisition and approval process gives you complete control at every level.
Only people higher up the approval chain approve purchase orders after they review them and they meet specific criteria.
For example, someone on your team knows they need to make a purchase order to order new materials for a prototyping project. The team member puts in a purchase requisition request or a purchase order by filling out a digital purchase order.
Once the staffer completes the order through a very simple process, the PO approval person receives an alert to review the purchase order.
Your purchase order management software ensures that people who shouldn’t have authorization to make purchase orders or approve them can’t have that task. With administrator-level access, managers and procurement teams can set parameters on who can and can’t get in the system.
Enhances the Purchase Order Process
As a procurement manager, you have complete control over the purchase order process based on your business structure. Automatic routing of PO approval requests provides an audit trail to show who took certain actions along the purchasing process in case there are other questions, comments, and concerns later.
Each purchase requisition request in your purchase order management software outlines how your company pays for the order and when, creating expectations for your finance team to send payment to the supplier.
Purchase order software automates the process of purchase requests, which eliminates errors in the submissions of the purchases. It can also avoid double entries, too many items being purchased, and duplicates coming from multiple departments.
For example, a line supervisor fills out a purchase requisition for new raw materials, unknowingly that his supervisor was already taking care of it. The supervisor can decline the PO request with a click of a button. Luckily, with an automated purchase order process, the line supervisor only took five minutes to make the request.
Your sales staff needs real-time data to give possible delivery estimates for a new prospect. Your sales manager can easily find the data he needs by accessing your purchase order management software to look at outstanding purchase orders, inventory, purchase requisitions, budgets, and finances to determine how fast an order can be done and if there is a possibility of finishing a rush order.
This also lets you avoid back orders and missing deadlines as promised by your sales staff. It sets realistic expectations for order completion.
Look for Discounts
Some suppliers will give you bulk discounts when you order certain quantities at one time or within a certain time frame.
One line supervisor needs 5,000 hex bolts, while a second line supervisor needs 7,500. Both purchase requisition requests happen on the same day, and both go to the same engineer.
He reviews the purchase requisition requests and notes that Acme Metalworks offers a 5 percent discount on orders of 10,000 hex bolts or more.
If he had fulfilled both orders separately, it would have cost the company $10,000. Combining the orders saved the company $500. Over the course of 12 months and hundreds of orders, discounts like these add up quickly, and purchase order management software can help your company achieve better efficiency. You can even set up the system to send people alerts when discounts are available.
Shortens the Time You Receive Your Supplies
When you streamline the purchase order process, you receive your supplies faster. In some cases you might be able to shorten the time of delivery by two or three days, particularly if you can perform quick research as to who can deliver the raw materials you need the fastest.
You shorten your delivery times, and enhance your own time to market, because your suppliers probably use an automated system to fulfill the orders they receive.
Your purchase order software automatically sends every digital purchase order to your supplier in real-time. Their fulfillment software acknowledges receiving the order and can even send you an estimate as to when you will receive the goods.
Your procurement team will know when to expect the shipment, and your accounts payable team can handle the transfer of funds at the appropriate time. You might consider setting up this process to run automatically once your team gets the hang of it.
Your procurement and finance teams love to see those financial numbers climb to the positive side of the cashflow ledger.
Vendors easily convert your digital purchase orders into electronic invoices. This reduces or eliminates the risks of being billed for items you didn’t order or receive because the invoice will match any purchase order numbers. The purchase order management software automatically aligns the PO number with the invoice, giving you an automatic check to match what’s happening.
There is no guesswork. It’s all right there.
Streamlining your purchasing process with purchase order software reduces the time it takes to perform a three-way match to verify your purchase order with an invoice and receiving documents.
Once your purchase order software matches everything with the purchase order number and the resulting invoice number, accounts receivable no longer has to hunt down the three documents as part of your electronic purchase order process.
They are all right there, in the computer system, and they are matched accordingly for accurate purchasing workflows. Streamlining this process also allows your team to fulfill the purchase order by paying for it in a timely manner.
The supplier is happy. Your team is happy. Accounts receivable can focus on other tasks. The procurement team can find strategic ways to send money, and your team finds ways to grow the business.
Reduces Errors and Labor Costs
The key to growing your startup or small business comes from saving money on expenses to achieve higher growth.
Your purchase order software streamlines a lot of work. This gives your procurement team time to spend on supply chain management, supply chain diversification, contract negotiations to find better deals and terms with suppliers, expanding the supply chain, and finding efficiencies in the purchasing process.
Managers don’t spend as much time tracking down verifications and approvals for purchase orders and invoices. Instead, your team can make payments more effectively and even earlier, which helps you to manage cash flow and times to market.
All of this leads to robust data analytics and better reporting, so you know how to move forward.
Your purchase order software is only as good as the data it collects and analyzes. Your procurement and upper-level managers can use data in your purchase order management system to forecast, set spending limits, and make decisions on what to focus on in the coming months, quarters, and year.
Monthly budgeting becomes easier, especially when you plug in sales numbers and future orders. Managers can know whether or not they can approve or reject a purchase requisition request when looking at real-time numbers.
You can also take into account busy seasons, such as winter holidays, for your production lines. That way you can optimize staffing levels, maintenance downtime, and replacing older equipment by having better planning tools at your disposal.
By having pre-set parameters in your purchase order software, you can prevent procurement staff from exceeding a budget limit and you can control costs more effectively.
Teams can also outline the chain of command for approval processes. If someone leaves, administrators can easily remove someone’s access to the system and approve the next person in line to make final approvals within your purchase order software.
Where can I get the right purchase order software?
Talk to ControlHub.
We can help you with streamlining your purchasing process with better PO management thanks to top-notch purchase order software that gives you full control over the parameters of the system.
Reach out to us to request a demo. We’ll show you how easy it is to use.
Frequently Asked Questions
What is purchase order management all about?
Wondering what purchase order management is all about? It's like having a superhero sidekick for your procurement process. It ensures that each purchase is necessary, justified, and perfectly aligned with your budget. Say goodbye to unnecessary expenses and hello to optimized purchasing power!
How do electronic purchase order systems simplify the procurement process?
Let me give you an example. Imagine your production lines running smoothly until you realize you need more bolts for your lawnmower assemblies. With an electronic purchase order system, the process becomes a breeze. From purchase requisition requests to approvals and seamless communication with suppliers, it's all streamlined for your convenience.
What are the benefits of electronic purchase order systems?
Now, let's talk about the incredible benefits these systems bring to the table. First off, they enhance your overall purchase order process. You have complete control, real-time tracking, and automatic routing of approvals. No more guesswork or unnecessary delays!
How do electronic purchase order systems prevent errors and provide real-time data insights?
But wait, there's more! With electronic purchase order systems, you can wave goodbye to errors and welcome real-time data insights. No more "I wish we would have known that a month ago" moments. Stay ahead of the game, make informed decisions, and prevent inventory problems before they even happen. It's like having a crystal ball for your procurement success!
Do electronic purchase order systems offer financial benefits and shorter delivery times?
And here's the cherry on top: financial savings and shorter delivery times. These systems ensure accurate billing, efficient three-way matching, and streamlined payment processes. Plus, you can leverage supplier discounts and enjoy faster delivery of your supplies. Your procurement and finance teams will be singing hallelujah!
How do electronic purchase order systems support planning and growth?
But it doesn't stop there, my friends. Electronic purchase order systems provide you with better planning tools. Forecast, set budgets, and optimize your supply chain like a pro. With robust data analytics and reporting, you'll be ready to tackle any challenge and drive your business forward.
Where can I find the right purchase order software?
So, where can you get your hands on the right purchase order software? Look no further than ControlHub! Our top-notch purchase order management software gives you full control over your procurement process. Request a demo today and witness the magic for yourself!
How can I revolutionize my procurement process with electronic purchase order systems?
Don't miss out on this opportunity to revolutionize your procurement process. Contact us at ControlHub and let's rock your business with streamlined efficiency and boundless success!